Layaway is out. “Buy now, pay later” is in.
Need a new bike? Don’t want to spend all that money today? At some stores, you can take the bike home today and pay for it over time. Now this could even help you build a good credit reputation—and in today’s economy, that’s becoming critically important.
Imagine you’re buying something big—like a house or a car. Even if you’ve saved up, you probably need to borrow some money. You need a loan.
“But wait,” says the bank. “How do we know you’ll pay us back?”
The answer: Show the bank your credit score. Companies like FICO, TransUnion, and Equifax track individuals’ financial history to calculate this number. Your credit score tells lenders whether you can be trusted with their money.
In the past, many stores offered “layaway.” A store would hold an item for you while you paid it off in installments. Once the balance was paid off, you took your item home.
“Buy now, pay later” works like the name suggests. Like layaway, you pay off the purchase over time. But unlike layaway, there’s no waiting until you’re paid up to take your purchase home.
Credit scoring companies are paying attention to “buy now, pay later.” If you’re trustworthy enough to pay off that bike, maybe you’re trustworthy enough to pay off a car or a house.
In one way, this makes sense. Think about Jesus’ parable of the talents in Matthew 25. The master wanted to see how his servants handled a little money before he entrusted them with more.
But “buy now, pay later” can tempt people to overspend. If you don’t have enough money for that new game console, should you really buy it now? You think you can pay later, but what if you can’t?
That’s the danger of debt. When making “buy now, pay later” purchases, buyers usually commit to a small number of payments. But for bigger or more frequent purchases—like those made on a credit card—some people get trapped in lifelong cycles of debt.
Conventional wisdom used to say “Avoid debt entirely! Don’t buy anything you can’t afford!” But today, if you’ve never used any credit at all, it might be impossible to show that you can handle a loan.
So how do you build credit if you don’t have credit to start with? By counting smaller “buy now, pay later” purchases, credit scoring companies can help people starting out to earn a good credit rating. Just take part with caution, restraint, and wisdom.
Why? It’s good to show that we can handle money wisely, but practices like “buy now, pay later” can easily tempt us to greed or recklessness with our finances.